Stocks dropped like a rock on Monday after China made good on its promise to retaliate – raising taxes on U.S. goods, largely agricultural products. The tariff increase to 25% from 10% on US$60 billion worth of U.S. goods, although smaller in value as compared to Trump’s US$200 billion, was enough to cause damage to the DJIA (Dow Jones Industrial Average), which plunged 617.38 points.
The Dow actually fell as much as 719.86 points, and could get worse if not for a quick statement from President Donald Trump to save the day – that his administration had not decided whether to slap tariffs on an additional US$325 billion in the remaining Chinese goods. Amusingly, Trump tweeted on Monday that China will be “hurt very badly if you don’t make a trade deal”.
With Beijing’s new tariffs on US$60 billion worth of American goods, to be effective on June 1, all eyes have now shifted to Washington. Trump had hoped, even urged, the Chinese not to retaliate, but obediently bend over after he raised duties to 25% from 10% on US$200 billion in Chinese goods. The Middle Kingdom’s defiance means Trump has no choice but to use his remaining bullet.
Trump will lose face, something which he cannot afford, if he does not follow through with his threat to slap 25% tariff on the US$325 billion in Chinese goods that remain untaxed. Thereafter, neither the U.S. nor China can threaten to raise tariffs on each others’ goods, unless they plan to increase the percentage of the tariff rate already imposed in the trade war.
Just before China announced the duties hike on Monday, it says that Beijing “will fight to the end”. Among 5,140 American products to be hit is food products – cooking oils, frozen vegetables, wine, beer and other beverages. Others include industrial minerals – chemicals, textiles and clothing, jewellery, metal products, machinery parts, not to mention consumer items like home appliances and condoms.
On Monday evening, Trump moved to calm the stock market, saying he will meet with Chinese President Xi Jinping in June. The U.S. president has also offered another rhetoric to prevent the Wall Street from going bonkers before the opening bells on Tuesday, saying it would take another three or four weeks of heated trade negotiations.
Of course, the Office of the U.S. Trade Representative (USTR) is busy preparing to slap tariffs on the remaining US$325 billion of Chinese goods coming into the U.S. The committee will hold a public hearing on June 17 followed by another week for comments. That means the earliest date Trump can fire the last bullet is June 24.
Between now and June 24, Trump wants to give an impression that the U.S.-China trade negotiations are ongoing, when in fact it’s as good as dead. The president also does not want the stock market to collapse during this period, hence his rhetoric that he had not decided whether he would go through with the tariffs.
However, the educated guess is President Trump will not impose the tariffs on the remaining Chinese goods until his meeting with President Xi at Osaka G20 Summit, to be held on 28-29 June in Japan. American farmers are among those most hurt by the trade war, so much so that Trump plans to provide US$15 billion to help farmers whose products might be targeted.
But China appears to be preparing for a full-blown trade war with the United States. They are neither impressed nor interested in Trump’s game. On the same day the country announced tariff increase to 25% from 10% on US$60 billion worth of U.S. goods, it also provides online applications – only for Chinese companies that cannot afford the tariffs – for exclusions from the new tariffs.
Another sign that China is preparing its 1.4 billion populations for a long trade war could be found when shortly before Beijing announced the new tariffs on Monday (May 13), government-controlled CCTV broadcasted the warning – “China has already given its answer. If you want to talk, our door is wide open. If you want to fight, we’ll fight you to the end.”
Obviously, the Chinese Communist Party has started rallying the people to the possibility of a prolong trade war with the United States. Today (May 14), the People’s Daily, China’s official newspaper of the Communist Party, publishes a post titled “This, is China’s attitude!” on its official WeChat account. The post contains 3 slogans, with each using 3 Chinese characters.
The three slogans, or rather message for the U.S., printed over the red Chinese flag and a picture of shipping containers, says – “Negotiate, sure!”, “Fight, anytime (bring it on)!”, “Bully us, dream on!” This is perhaps the clearest message from President Xi Jinping to President Donald Trump that the Chinese are ready for the war. Just bring it on!!